Hawaii home market cools / Median price down as number of listings on Oahu surges

Kelly Zito, Chronicle Staff Writer

Published
4:00 am PST, Sunday, January 15, 2006

** ADVANCE FOR WEEKEND EDITIONS NOV. 5-6 ** Construction continues at Moana Pacific condominiums in the Kakaako district of Honolulu, on Oct. 27, 2005. With buyer demand driving Hawaii's housing boom, developers have created a bulge in this area near downtown Honolulu, where there are plans for 14 new residential towers with about 4,000 units. The area's condominium development pipeline has gotten so fat that it is eliciting concern about overbuilding. (AP Photo/Honolulu Advertiser, Joaquin Siopack) THE STAR-BULLETIN OUT ADVANCE FOR NOV. 5-6, OCT. 27, 2005 PHOTO less

** ADVANCE FOR WEEKEND EDITIONS NOV. 5-6 ** Construction continues at Moana Pacific condominiums in the Kakaako district of Honolulu, on Oct. 27, 2005. With buyer demand driving Hawaii's housing boom, developers have created a bulge in this area near downtown Honolulu, where there are plans for 14 new residential towers with about 4,000 units. The area's condominium development pipeline has gotten so fat that it is eliciting concern about overbuilding. (AP Photo/Honolulu Advertiser, Joaquin Siopack) THE STAR-BULLETIN OUT ADVANCE FOR NOV. 5-6, OCT. 27, 2005 PHOTO less

Hawaii home market cools / Median price down as number of listings on Oahu surges

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A cool front has wafted westward to Hawaii's housing market, where declining home sales and higher inventories are keeping a lid on prices in a rarefied part of the country where appreciation exceeded 30 percent last summer.

Although home values on the island state remain relatively high by historical standards -- comforting news for the many Californians who own property there -- the market appears to be swinging in buyers' favor after a half-decade run-up.

"Things are staying on the market a lot longer," said Gladys Lau. The San Francisco resident has been looking for a condo in Honolulu for a couple of years; she said she thinks prices will soften enough to allow her to buy a unit in the $500,000 to $600,000 range later this year.

After blistering price growth over the past several years, the housing markets in Denver, Las Vegas and San Diego have also ratcheted down. In the Bay Area, sales tallies declined in the last eight months of 2005, but values continued to grow in the high teens on a year-over-year basis.

Typically, Hawaii's real estate market lags the mainland's by six to 24 months and is often more difficult to read because of the relatively high number of homes owned by out-of-staters, experts say.

"It's part of a broader trend," said DataQuick researcher John Karevoll. "Nationwide there are markets that have a ways to go, especially in the Midwest. But we're much closer to the end of the cycle than the peak. Now we're watching how it plays out -- whether it's going to smash into a wall or just level off for a while."

In November, the median price for a home on Oahu was $418,000 -- well below a peak of $569,000 in August and 8 percent below the year-ago median -- according to DataQuick, a La Jolla (San Diego County) firm that tracks real estate markets throughout the country. Its surveys are based on filings with county recorders' offices and usually reflect sales initiated 30 to 60 days earlier.

Last month, the Honolulu Board of Realtors reported a nearly 25 percent drop in the number of single-family houses sold at the same time the supply of listings surged 47 percent.

"In the past year, sellers would put up the price, and there would be three people who wanted to buy at or above the asking price," said Harvey Shapiro, research economist at the Honolulu Board of Realtors. "That kind of demand has really shut down recently."

Michael Sklarz, a Honolulu resident and head of analytics for Fidelity National Financial, cautioned against reading too much into a couple of months of sales statistics and said a wintertime slowdown is the norm. In addition, a large number of new, lower-priced homes may be skewing the median price downward.

In fact, he said he expects the median home price on Oahu, home to roughly three-quarters of the state's 1.28 million people, this year to edge closer to $700,000, on par with current prices on neighboring Maui and Kauai. The Honolulu Board of Realtors says Oahu's current median price for a detached home is $610,000. That survey is based on homes sold through the Multiple Listing Service, which may not include new homes or homes for sale by owners.

A rise of that magnitude would please San Francisco resident Sylvia Lee, who in December plunked down $222,000 for a 14th-floor unit in a Waikiki "condotel," where buyers own a furnished hotel room that is put into a rental pool when not in use.

"It's relatively inexpensive to anything in the Bay Area, it's in a good location, and since we bought it with family, we've spread out the risk," said Lee, 44, a finance manager at Wells Fargo's Internet Services Group.

Nevertheless, there is some concern that a late surge in supply could dampen the market. In Honolulu's Kakaako district downtown, 14 new residential towers totaling about 4,000 units are expected to come on line by 2010. That's in a state that is currently building roughly 8,000 homes per year.

Further muddying the waters, estimates on the percentage of Honolulu's homes owned by investors run as high as 30 percent, according to Shapiro of the Board of Realtors.

To housing analysts, such a high concentration can leave a market vulnerable to rapid downturns if groups of investors dash for the exits.

"In these markets, I characterize them as flip-flopping between hysteria and depression," Sklarz said.

But there may be another, more benign scenario, according to Brewbaker.

In markets such as San Francisco and Honolulu, home price trend lines can follow a stair-step pattern, where values leap for a few years and then plateau.

"In some places, like Iowa or Texas, where there are no such things as building permits, the path is smoother, with a steady rate of return of 4 percent each year," Brewbaker said. "In other places, it comes in fits and starts, and the distinction between the smooth path and the stair step has to do with the extent of geographic and regulatory scarcity."